Syria/Turkey dispute reverses crude trend

Long-term supply situation still bearish

The OPEC monthly oil report was just released. Following are some of the main highlights from the report. They did lower their oil demand forecast for 2013 by about 30,000 bpd with the risk skewed to the downside.

World economic growth in 2012 was revised down to 3.1% from 3.3% previously, reflecting slowing growth since the start of this year. Assuming the deceleration will bottom out in the current quarter, the forecast for 2013 has been left at 3.2%. The US expansion remains below potential at 2.2% in 2012 and 2.0% in 2013. Japan is increasingly feeling the weakness in exports and is seen expanding by 2.2% in 2012 and 1.1% in 2013. Meanwhile, the Euro-zone is expected to grow at 0.1% in 2013, following a contraction of 0.5% this year. The weakness in developed economies has been widely felt in the export-oriented emerging market economies. China is now forecast to expand by 7.6% in 2012 and 8.0% in the coming year. India is forecast to grow by 5.7% this year and 6.6% in 2013.

World oil demand is expected to grow by 0.8 mb/d in 2013, unchanged from the previous forecast and in line with the growth for the current year, which has been revised down by 0.1 mb/d. The projections for global oil consumption continue to be affected by the uncertainties facing the world economy. Slower industrial production has sharply reduced global oil demand in both the US and China, and the winter outlook represents further uncertainties in the coming months. Risks to the forecast for 2013 are primarily on the downside, due to the turbulence in the world economy.

Non-OPEC oil supply is now forecast to increase by 0.6 mb/d in 2012, following a downward revision of 0.1 mb/d from the previous month, due mainly to lower-than-expected supply from Brazil, Kazakhstan, China, Azerbaijan, and the UK. In 2013, non-OPEC oil supply is expected to grow by 0.9 mb/d, supported by anticipated growth in the US, Canada, Brazil, and Kazakhstan, as well as Sudan and South Sudan. OPEC NGLs and nonconventional oils are expected to increase by 0.4 mb/d in 2012, and 0.2 mb/d in 2013. In September, total OPEC crude production averaged 31.08 mb/d, according to secondary sources, representing a drop of 265 tb/d from the previous month.

Demand for OPEC crude for this year has been revised up by 0.2 mb/d from the previous assessment to stand at 30.1 mb/d, representing a decline of 0.1 mb/d compared to last year. In 2013, demand for OPEC crude is forecast to average 29.8 mb/d, a decline of 0.3 mb/d from the current year and representing an upward adjustment of 0.2 mb/d from the previous report.

In the tropics there are still a few weather patterns to keep on the radar. As of this morning there are two areas... one a couple hundred miles northeast of the Bahamas and one about 1,050 miles east of the Windward Islands. Neither pattern has a very high probability of strengthening into a tropical cycle over the next forty eight hours nor is their direction currently projected yet. Thus nothing needs to be done on the oil or Nat Gas front other than to simply watch the progress over the next few days.

From a technical perspective both WTI and Brent have been in a relatively wide trading range for the last three weeks or so with WTI trading between $88/bbl to about $94/bbl while Brent has traded between about $107/bbl and $115/bbl. Both of these markets have been relatively indecisive as to their next price direction. Over the last three weeks about half of the trading sessions ended lower on the day with the other half ending higher... certainly a market that is laden with uncertainty and not a strong conviction one way or the other at the moment.

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